The Mortgage Settlement's Big Day

posted by Katie Porter

Today, October 2, is the last day for the nation's five largest mortgage companies to implement the servicing reforms in the National Mortgage Settlement. As California Monitor, I issued my first report to highlight one of the most important changes--restricting dual tracking. Dual tracking is the name given to the race between foreclosure and loan modifications. Because banks control both processes, beyond some specified waiting periods by state law, many families lose the race to get a decision on whether they can save their home with a loan modification. Restrictions on dual tracking are key to avoiding preventable foreclosures and creating fundamental fairness in the foreclosure process.

The report gives some data on dual tracking to bring visibility to this
issue. After the jump, I report some bad news and good news on how the
Settlement implementation reforms are going.

The California Monitor Program received 224 complaints about dual tracking since the Settlement was announced. The bad news is this clearly understates the degree of the problem. Most families do not file a complaint, and even among the 1,482 total complaints received, some may focus on confusing communication from their banks, meaning my staff doesn't realize dual tracking is occuring into well into its work to help the family. The good news is the trend line is sharply downward in September. As the chart shows, dual tracking complaints were half as frequent last month.

I am going to continue to monitor dual tracking complaints in the upcoming
months. If the mortgage servicers are honoring their promises in the
Settlement, the number of complaints should fall sharply. The National Monitor, Joseph
Smith, will use the metric set out in the Settlement to formally measure the
mortgage servicers' compliance with the dual tracking rules.

Behind the complaint numbers are families dealing with uncertainty, fear,
and frustration. My report features the stories of California homeowners who
were dual tracked and faced imminent sale dates, despite submitting complete
loan modification applications. While the California Monitor Progrm worked
successfully with mortgage companies to stop dozens and dozens of sales during
the Settlement implementation period, the point of the Settlement reforms is
structural change. Homeowners shouldn't need a law professor as their ally to
receive fair treatment.

The next few months are an important test for whether mortgage companies
were successful in their efforts to retool their operations. The Settlement
holds the promise of change, and I'm very eager to see the degree to which
those changes reduce challenges of families struggling with their mortgages.

Comments

Professor Porter,
Thank you for your important public service.
I’m a bankruptcy intake assistant for an attorney at ground zero to the sub-prime mortgage disaster in the California Central Valley.
I refer every foreclosing debtor to the California Attorney General’s web site for information on the National Mortgage Settlement program.
Just a few questions if you would.
1. Is the mortgage modification program the banks agreed to administer as a result of the settlement the same program the US Treasury defined under HAMP?
2. I’m still seeing the banks play the same “resend the documents” stalling game which was so prevalent under HAMP. It makes me ask - were the participating banks required to re-train their mortgage modification staff?
3. Under HAMP Congress passed TILA amendments holding banks harmless for writing modifications which did not diminish the net present value of the property; ie, when modifications returned greater value than foreclosure. Is this “release” still a protection the banks enjoy?
4. And the tough question - Can or will bankruptcy help a modification applicant? I believe the bank cannot discount debt in the financial application process; however, once discharged, the lack of unsecured debt improves the debt to income ratio used to evaluate qualification for a modification.
5. Which brings up another question - under what conditions are banks willing to enter into a waiver of the automatic stay with the debtor upon filing for bankruptcy to continue negotiating a modification?

I have another dozen or so questions, but these dominate my discussions with clients.

Thanks for the update Prof. Porter! I'm closely monitoring and keeping my clients informed as well and happy to report that Chase bank solicited one of my potential bankruptcy clients for a loan modification! I will work to help him present a 'complete' packet to Chase in the hopes he may receive a modification.

@Robert White I appreciated reading your post. Great questions.
I am blessed to have been granted a loan mod but now owe twice the value of my home in today's market. (The short sale was 200K and the principle on the mod came in at 445k!).
I had believed that the principle was going to be lowered but when the papers were presented to us, we were consumed with relief that an end to our three year quest was about to end that we didn't ask the question then for fear of the mod being revoked.

Chase was apparently ahead of other lenders already having a team in place at the conclusion of the settlement agreement. The team was created specifically to handle the analysis of existing loans and determining whether or not these default or underwater mortgages met the modification criteria; therefore, it is not too surprising to see their borrowers already benefiting.

Chase has modified over 3,000 mortgages for a grand total of $369 million.

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